In the very earliest days of a newly acquired portfolio company, “I’m from corporate and I’m here to help” is probably one of the worst things that a leadership team can hear, particularly coming from operating partners. While that “help” can be of immense value, the initial reaction is usually one of defensiveness.
The role of Operating Partner within the PE world is very much a live issue, but if you have chosen to pursue that route it’s worth considering how to maximise the effectiveness of the role and, frankly, give your Operating Partners a fighting chance of adding value.
It’s a truism to say that the relationship between a portfolio CEO and the Operating Partner needs to be built on trust but it’s worth exploring how to get there. This powerful graphic is useful in explaining how we see this issue.
Assume that the starting point is ‘distrust’ (we’ll discuss how to make the starting point a different place in a later article), which means the CEO thinks the Operating Partner does not care about him / her (the vertical axis) AND they don’t believe that the Operating Partner is competent (the horizontal axis). Clearly for an Operating Partner to stay in this position for any period of time means they are, at best, not going to be adding any value.
Of course, as an Operating Partner, your instinct is to drive hard on both axes to get to the ‘trust’ quadrant. Our view is that, as a priority, the Operating Partner should work hard on getting to the ‘respect’ quadrant for two reasons:
- In a PE deal the clock is ticking and demonstrating competence means that you are probably adding value to the investment
- The portfolio firm is going to be paying for your services, likely directly, and the CEO is going to be reluctant to sign checks for an Operating Partner that is not regarded as competent
In our experience, demonstrating competence is not about being ‘the smartest guy in the room’ but rather it’s about checking your ego at the door and listening to what’s being said and watching how things are being done before offering some perspective and alternate strategies.
Obviously the issue of trust is also important, but it takes time and is a fragile thing. It’s unlikely that you can quickly get to a level where the CEO will trust you with their innermost fears and misgivings. But progressively building trust is critical if you want to maximize the value of the role.
The likely two biggest concerns of any CEO of a newly acquired firm will be:
- Are you here to take my job?
- Are you taking notes and reporting back to the new owners every night?
You won’t hear this from the CEO, but you can bet that they are thinking it. Our experience is that it’s worth getting both of these questions out on the table in the first meeting, showing that you recognize the issues and are open to complete candor and transparency.
Both of these are about a demonstration, over time, that you can be trusted and, if you commit to being worthy of trust, you need to think very hard about how you communicate to the Limited Partners; trust is a fragile thing and you are walking a tightrope. No one said this was an easy job.